Month: June 2017

Social care is one of the key reasons that the Tories believe they lost their majority in the general election. Everyone agrees that more money is needed to pay for the care some of us will need in old age. That money can either come from taxation or from the individuals who actually need the care (with a safety net for those who can’t afford it). This debate cuts to the heart of political differences between the left and right; between universalism versus means testing; and on the difficulty of selling tax rises to the people who will actually have to pay them.

If the money for social care is to come from tax, everyone will get care from the state free at the point of use, but taxes will go up to pay for it. A few years ago, Labour’s Andy Burnham, now the Mayor of Greater Manchester, suggested that the extra tax should be raised by a large increase in inheritance tax. Mr Burnham was honest enough to explain that raising significant revenue from estates required that the nil rate band and many other inheritance tax reliefs were curtailed. People who assumed that they’d pay little or no inheritance tax would be hit by a big bill.

The tabloids immediately branded Mr Burnham’s plan as a ‘death tax’, but, in fact, it has a lot going for it. Firstly, inheritance tax is (in my view, at least) a fundamentally fair tax on windfall gains we make when our parents die. By far the largest chunk of inherited wealth is residential property which has never been taxed because of its exemption from capital gains tax. There are moral issues with taxing money we earn from our own efforts, but surely not from taxing accumulated gains on houses that don’t even belong to us. Secondly, under Mr Burnham’s idea, everyone gets the care they needed regardless of ability to pay. This is a fundamental principle of the NHS which, for better or worse, is dear to the hearts of the British people.

Still, a new national care service financed from taxation was never going to appeal to the Tories. One alternative, proposed by a commission chaired by the economist Sir Andrew Dilnot in 2011, was for all care costs up to a set limit to be paid for by the state. Sir Andrew suggested a cap on care costs of £35,000. We would all be expected to take out insurance to cover costs in up to that limit, but the state would pay the rest. There are a number of problems with this approach. For instance, not everyone would have insurance and be able to pay for care costs up to the cap. The State would end up picking up their tab anyway. Second, if the cap were too low, it would be very expensive for the Government to pay for all the costs over that level. In any case, the level of the cap would quickly become a political football. This means the idea is one that appeals to policy wonks (like Sir Andrew) but is likely to come unstuck in the real world. Theresa May’s advisor Nick Timothy realised this and proposed an alternative social care plan in the Tories’ 2017 manifesto. That the Labour Party immediately adopted the Dilnot plan rather than Mr Burnham’s proposal (after mentioning neither in its manifesto) suggests that it gave the issue no thought at all.

This brings us to Mr Timothy’s proposals in the Conservative manifesto that have caused so much controversy. The idea is essentially a rightwing spin on the Burnham plan. In line with Burnham, everyone is covered because there is a safety net that pays the care for people with assets below £100,000. Also echoing Burnham, the plan is financed from people’s estates when they die (essentially residential property wealth, which is currently undertaxed). This means no one has to pay cash upfront for the care they need. However, people will be able to buy the care they want from their own assets rather than relying on what the state choses to provide them with. The disadvantage of Mr Timothy’s idea is that the children of people who need expensive longterm care will have smaller inheritances that those whose parents crash their Porsche the day after retiring. This is unfair. But I am not convinced it is any more unfair than having wealthy parents in the position to hand down the money in the first place, not to mention all the other advantages of a financially secure upbringing.

Whether you prefer the Burnham or Timothy plan probably depends on what you think about the relative advantages of a universal system financed by taxation, or people paying for themselves with a safety net for the poor. But it is very unlikely that this consideration is what has hit the Tory lead in the polls. Instead, people are simply reacting to a Government telling them they’ll have to pay for something they previously imagined they’d get for free. Some commentators are saying that Mrs May should have avoided the controversy by suggesting a Royal Commission or just keeping mum about her plans. But the issue is hugely controversial and massively expensive. In my view, it was completely right that the Conservative Party should present their proposal to the voters. Only by doing so would they have had mandate to push them through Parliament. Inaction and silence might have been the easier option, but not the right one.

That’s not to say the Timothy plan is better than Mr Burnham’s. The latter’s ideas were just as brave and financially credible. That neither of these sensible plans for social care have been given a fair hearing by the public reflects poorly on our democracy. Most alarming of all was Mrs May’s U turn as soon as the pressure got too much. She now appears to be advocating a Dilnot-style cap: the worst of both worlds. But quite what the policy is to be following Mr Timothy’s departure and the loss of the Conservative majority is anyone’s guess. And with taxes bound to increase in the next few years, the social care fiasco bodes ill for grown-up public debate in general.